A. Introduction
In this blogpost, we present the key differences in financial disclosures reported by HDFC Bank Limited in India and in the United States (U.S.). As of March 31, 2021, HDFC Bank Limited (henceforth the bank) had 18.65% of its shareholding in the form of American Depository Shares (ADS) that are listed on the New York Stock Exchange (NYSE). As part of its regulatory compliance in the U.S., as a foreign private issuer, the bank is required to file its annual report to the Securities and Exchange Commission (SEC). HDFC prepares these financial statements in accordance with U.S. GAAP.
B. Scope and Methodology
The actual disclosures reported by the bank in India as part of its annual report as well as of the quarterly Basel III – Pillar 3 disclosures (henceforth Basel disclosures) were compared with the disclosures made by the bank in the U.S to the SEC as part of its annual report in Form 20-F. The objective of this comparison was to assess if there are differences in the nature of disclosures made by the bank in the two jurisdictions. For this assessment, disclosures reported for Financial Year 2020-21 were considered.
The assessment compared the nature of disclosures reported across four information categories:
- Loans and Advances
- Investments
- Exposures (includes loans and advances and investments)
- Asset Quality
C. Key Differences Observed under each Information Category
We found the following key disclosures reported in the U.S. to be absent either completely or partially in the disclosures reported by the bank in India:
Table 1: Key Differences in Disclosures reported by the bank in India and U.S by Information Category
| Information Category | Disclosures not reported in India either completely or partially |
| Loans and advances | 1. Distribution of loans by industry (overall exposure[1] to the industry is greater than 2%) – This information is available in Indian reporting but is limited. The disclosure of advances by sector in the annual report is limited to only 4 broad sectors – agricultural and allied activities, industries, services, and personal loans. The numbers in Basel disclosures indicate aggregate exposure[2] by industry and therefore include investments and other exposures in addition to loans. 2. Maturity of loans by retail and wholesale (<=1 yr, 1 to 5 yrs, >5 yrs) – Maturity pattern of loans and advances is available in Indian reporting only at an aggregate level. The numbers are not available by the type of loan portfolio (retail/ wholesale). 3. Classification of the total loan portfolio by interest type (fixed and variable) and by maturity (<=1 yr, 1 to 5 yrs, >5 yrs) – This information is not available in Indian reporting. |
| Investments | 1. Contractual residual maturity of Available for Sale (AFS) debt securities (<=1 yr, 1 to 5 yrs, >5 yrs) – Maturity pattern of investments is available in Indian reporting only at an aggregate level. Further break-up by investment category (AFS, Held for Trading, and Held to Maturity) is not available. 2. Movement of allowances for credit losses for AFS debt securities – This includes allowance for credit losses at the beginning of the period, write-offs during the period, addition to allowance, and allowance for credit losses at the end of the period. This information is not available at a disaggregated level (by AFS, Held for Trading, and Held to Maturity) in India. |
| Exposures | 1. Distribution of exposures by industry (greater than 2% exposure) – A similar disclosure is available as part of Basel disclosures in India where the exposure amount is further classified as funded and non-funded. However, Form 20-F includes a further sub-classification of funded exposures by loans and credit substitutes. 2. Concentration of exposure[3] (size of Top 10 exposures) – A similar disclosure is available as part of the annual report in India which covers the top 20 borrowers/ customers. This disclosure presents only a single aggregate number for all 20 accounts and their % share in overall exposures. However, reporting in Form 20-F is more granular as it provides information on amount of funded and non-funded exposure for each of the 10 borrowers. |
| Asset Quality | 1. Age analysis (past due status) of gross loans (retail and wholesale with further sub-classification by retail credit products[4]; < 30 days, 31 to 90 days, > 90 days)[5] –Basel disclosures of HDFC Bank made in India provides age analysis only for Non-Performing Assets (NPAs) (sub-standard, doubtful 1, doubtful 2, doubtful 3, and loss). Further, distribution by loan portfolio type (retail/ wholesale) is not available and distribution of loans by industry is presented only for NPAs. 2. Classification of loans by credit quality indicator by year of origination – Retails loans as performing and non-performing with further sub-classification by retail credit products; wholesale loans as pass, labeled, and non-performing[6]. This information is not available in Indian reporting. 3. Concentration of Non-Performing Loans (Top 10 borrowers) – A similar disclosure is available as part of the HDFC annual report in India, covering the top 4 accounts. However, this disclosure presents only a single aggregate exposure number for all the 4 accounts[7]. Reporting in Form 20-F is also more granular as it provides information on the industry type, type of banking arrangement (sole, consortium, multiple), gross and net principal outstanding, the share of the bank in collateral value, and status of interest payment servicing for each of the 10 borrowers. |
D. Implications of Findings for Indian Market Participants
To put the differences in disclosures between the two jurisdictions into perspective, we present below a few key insights which emerge from the annual report filed by the bank with the SEC. We have used the financial information pertaining to FY 2020-21 for this purpose. It should be noted that the numbers presented below relate to the consolidated financials of the bank, i.e., including the financials of its subsidiaries HDB Financial Services Limited and HDFC Securities Limited[8].
Table 2: Loan Portfolio of HDFC Bank as per Form 20-F as of March 31, 2021
| Asset Quality Status | Gross Loan Portfolio (in Rs. million) | % Share |
| Performing | 1,18,29,935.5 | 98.2% |
| Non-performing | 2,13,782.4 | 1.8% |
| Total | 1,20,43,717.9 |
- As of March 31, 2021, the gross non-performing loans of the bank constituted 1.8% of the total gross loans. Additionally, with the disclosure on age analysis of gross loans, we also know that 0.82% of the total gross loans or 0.84% of the performing loans were 31-90 days past due, with the remaining share being up to 30 days past due or current. Further, information on performing loans is also available by the type of loan portfolio as discussed earlier. For example, Form 20-F reveals that 2.2% of the performing assets in the ‘Commercial vehicle and construction equipment finance’ category under retail loan portfolio were 31-90 days past due.
- As of March 31, 2021, gross non-performing loans of the bank under the wholesale loan portfolio constituted 0.33% of the total gross loans or 0.95% of the wholesale loan portfolio. Further 0.89% of the wholesale loan portfolio was recorded as having evidence of weakness. Disclosure on credit quality indicator by year of origination provides further information. It indicates that wholesale loans originated before 2017 have the highest non-performing loan ratio at 10.17% followed by 3.44% in the year 2018.
- The disclosure on analysis of non-performing loans by industry sector shows that as of March 31, 2021, the gross non-performing loans as a proportion of gross loans in the respective industry sectors was the highest in the following industries (only the top 5 have been shown in Table 3).
Table 3: Five Industry Sectors with the highest Gross Non-Performing Loan Ratio
| Industry | Gross loans (in Rs. million) | Non-Performing Loans (in Rs. million) | % of loans in the industry |
| Capital Market Intermediaries | 13,037.0 | 3,877.4 | 29.7% |
| Agriculture Production – Food | 3,37,904.8 | 21,028.5 | 6.2% |
| Agriculture Production – Non Food | 1,65,146.5 | 8,348.7 | 5.1% |
| Road Transportation | 3,68,388.5 | 18,344.8 | 5.0% |
| Airlines | 791.2 | 36.8 | 4.7% |
- As of March 31, 2021, the top 10 non-performing loans of the bank represented 10.3% of gross non-performing loans and 0.2% of total gross loans. Further, the disclosure also shows that the highest share, at 17.6%, in the gross principal outstanding of all the top 10 borrowers is that of a borrower in the power sector, followed by housing finance at 15.9%.
As discussed earlier (see Table 1), the information presented through the disclosures illustrated above is not available to the market participants in India. However, these disclosures provide relevant and material information to the market participants about a bank’s credit risk exposure as observed in our earlier paper titled ‘Assessing Transparency of Indian Banking System’s Public Risk Disclosure Regime – A Regulation Based Approach’. In this paper, we had assessed the quality of the public risk disclosure regime applicable to banks and found the regulatory disclosure requirements related to a bank’s credit risk exposure to be inadequate, including on account of some of the disclosures illustrated above.
[1] In Form 20-F, in relation to this disclosure, exposure comprises of loans, credit substitutes, and non-funded exposures (including derivatives); Form 20-F defines ‘credit substitutes’ as comprising of investments in commercial papers and debentures issued by the same customers with whom the bank has a lending relationship in their wholesale banking business.
[2] As per Basel disclosures, exposure comprises of outstanding loans & advances, lendings, margins, investments in debenture & bonds, commercial papers, equity shares, preference shares, units of mutual funds, certificate of deposits, security receipts, on-balance sheet securitisation exposures purchased or retained, deposits with NABARD, SIDBI & NHB under the priority/weaker section lending schemes, guarantees, acceptances & endorsements, letters of credit and credit equivalent of foreign exchange and derivative exposures.
[3] In Form-20-F, the bank’s top ten largest exposures are based on the higher of the outstanding balance or the limit on loans, investments (including credit substitutes) and non-funded exposures (including derivatives).
[4] These include auto loans, personal loans/ credit cards, retail business banking, commercial vehicle and construction equipment finance, housing loans, and other retail loans.
[5] As per Form-20-F, loans which become 90 days past due are placed on non-accrual status and considered non-performing. Crop related agricultural loans are considered non-performing when they become 365 days past due. Further, in case of wholesale loans, loans can be placed on non-accrual status even when they are not 90 days past due, but the management is doubtful about the recovery of all principal and interest amounts.
[6] Wholesale loans disclosed as pass or labeled are considered to be performing. Form 20-F defines ‘labeled loans’ as those with evidence of weakness where such exposures indicate deteriorating trends which if not corrected could adversely impact repayment of the obligations.
[7] The ‘Master Direction on Financial Statements – Presentation and Disclosures’ issued by the RBI on August 30, 2021, has expanded the scope of this disclosure. This disclosure now includes total exposure to top twenty NPA accounts and their % share to total gross NPAs. See https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12158&Mode=0#MC
[8] These numbers may not match with the consolidated financials provided either in the annual report or the Basel disclosures in India on account of differences in the financial reporting standards followed by the bank in the two jurisdictions.
Cite this item:
APA
Prasad, S. G. (2021). Contrasting the Financial Disclosures Reported by HDFC Bank Limited in India and in U.S. Retrieved from Dvara Research.
MLA
Prasad, Sowmini G. “Contrasting the Financial Disclosures Reported by HDFC Bank Limited in India and in U.S.” 2021. Dvara Research.
Chicago
Prasad, Sowmini G. 2021. “Contrasting the Financial Disclosures Reported by HDFC Bank Limited in India and in U.S.” Dvara Research.
